The solid economic data backed up a view that the U.S. economy is not slowing quickly enough to prompt a rate cut by the Federal Reserve any time soon.

Traders, however, said the dollar's move was mainly technically driven after a few big sellers of the euro triggered a wave of automatic buy orders for the greenback.

"We're taking today's data as a sign that the U.S. economy is likely to pick up," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. "But this isn't enough to change the fundamentals that much and what we have today is really more of a technical correction."

The yen's decline came ahead of Japanese economic growth data due Thursday that is expected to support a view the Bank of Japan will keep its interest rates among the lowest inthe industrialized world for some months to come.

In New York, the dollar was and touched 120.83 yen on electronic trading system EBS. That was the highest since Feb 26, a day before a 3-yen plunge in the dollar triggered by the last big shakeout in carry trade positions.

With Japanese interest rates at 0.5%, the yen has been a popular currency to borrow cheap and invest in higher-yielding assets around the world in so-called carry trades.

The BOJ is widely expected to leave rates on hold on Thursday.

Against the dollar, the euro was , set to post its biggest daily drop in more than 2 months.

Dollar buyers at the London fix triggered automatic sell orders in the euro near $1.3560, which contributed to push the currency to session lows, traders said.